Tesco to Abandon its Solo Approach to Supermarkets in China

In an effort to move “more quickly to profitability,” the world’s third-largest food retailer announced today that it is abandoning its solo approach to China. UK retail giant Tesco will instead pay nearly $558 million to form a joint venture with China Resources Enterprise, a state-run firm that operates nearly 3,000 supermarkets and convenience stores in China and Hong Kong.

Under the terms of the deal—which must still be approved by shareholders and regulators—Tesco would merge its 134 China-based supermarkets and 11 shopping malls with China Resources’ Vanguard chain of stores. China Resources would hold an 80 percent stake, and Tesco would hold a 20 percent stake in the venture, which is expected to bring in annual sales of $16 billion.

This is the latest in a series of global setbacks for the UK retailer, which exited Japan in 2011 and the US in 2013, with respective losses of $241 million and $64 million.

Tesco’s chief financial officer Laurie P. McIlwee told the New York Times that China represents “a huge opportunity.” But without strong local connections, it is difficult, he said “to get your arms around it.”